U.S. financial institutions, including IBKR, are subject to state statutes which require that client accounts deemed "abandoned" be turned over to the state in which the client resides. These statutes are intended to protect consumers who may have lost contact with the financial institution as funds which have been turned over or escheated are then held by the state who, in turn, attempts to contact the owner or their heirs and return the funds.

The definition of abandonment varies by state but generally refers to accounts which have had no activity or contact for an extended period, in some cases as little as 3 years. To minimize the likelihood of an account being classified as abandoned, IBKR will attempt to contact inactive clients and have them simply log into their account, at which point the account is considered active for purposes of these statutes.

If an account is determined to be abandoned, IBKR remit the balance to the state in which the client resides which may result in positions being liquidated. In the case of clients who reside outside the U.S., the funds will be remitted to IBKR's state of incorporation, Connecticut.

Once funds have been escheated to a state, they cannot be retrieved by or through IBKR. Clients, however, may directly claim the assets from the state to which they were escheated. Most states maintain a public website which allows one to search their unclaimed property database and initiate a claim for assets. In addition, the National Association of Unclaimed Property Administrators maintains a website containing links to each of the individual state's databases: www.unclaimed.org.

Account holders logging into their account via IB's Secure Login System are issued a security device, which provides an additional layer of protection to that afforded by the user name and password, and which is intended to prevent on-line hackers and other unauthorized individuals from accessing their account. While IB does not charge any fee for the use of the device, certain versions require that the account holder return the device upon account closing or incur a replacement fee. Existing account holders are also subject to this replacement fee in the event their device is lost, stolen or damaged (note that there is no fee to replace a device returned as a result of battery failure).

In addition, while IB does not assess a replacement fee unless a determination has been made that the device has been lost, stolen, damaged or not returned, a reserve equal to the fee will placed upon the account upon issuance of the device to secure its return. This reserve will have no effect upon the equity of the account available for trading, but will act as limit to full withdrawals or transfers until such time the device is returned (i.e., cannot withdraw the reserve balance).

Outlined below are the replacement fee associated with each device.

SECURITY DEVICE

REPLACEMENT FEE

Security Code Card

$0.001

Digital Security Card

$0.002

Digital Security Card +

$20.00

Gold Device

$0.002

Platinum Device

$0.002

For instructions regarding the return of security devices, please see KB975

1 The Security Code Card is not required to be returned upon account closing and may be destroyed and discarded once remaining funds have been returned and the account has been fully closed. Access to Account Management after closure for purposes of viewing and retrieving activity statements and tax documents is maintained using solely the existing user name and password combination.

2 IB is no longer issuing a replacement for this Security Device. Account holders using this device are encouraged to log into Account Management and request a replacement device. Please see here for directions.

Price quoting for Forex pairs on IdealPro is subject to an industry convention whereby the relationship between the first pair (transaction currency) and second pair (settlement currency) is fixed and cannot be inverted. Considering, for example, pairs involving the USD, the following are examples where the USD is listed as the transaction currency: USD.CAD, USD.JPY and USD.CHF. Similarly, the GBP.USD, EUR.USD and AUD.USD are examples where the USD is listed as the settlement currency (a complete listing of quoting conventions for pairs executable via IdealPro can be found by typing IdealPro into the IB website search engine).

These quoting conventions introduce special considerations when one is attempting to close out a specific cash balance denominated in a settlement currency which, based upon the current quote, may not be able to be closed out in its entirety. To illustrate, assume the following transactions:

Day 1: Account holder maintaining USD 300,000 in a USD base currency account buys 10,000 shares of stock XYZ which is denominated in CAD at a price of 50.00. Also assume that the account holder does not convert USD into CAD prior to the stock purchase and therefore borrows the CAD necessary to settle the trade from IB. The USD.CAD closes at 1.0526 and XYZ at CAD 50.00 (no unrealized gain or loss). The end of day account balance is as follows:

Position

Position in Local Currency

Position Translated into Base Currency

Cash - USD

300,000.00

$300,000.00

Cash - CAD

(500,000.00)

($475,014.25)

Stock - XYZ

500,000.00

$475,014.25

NLV (in Base)

$300,000.00

Day 2: Assume no trade activity, the USD.CAD closes that day at 1.0309 and XYZ closes at CAD 52.00. (unrealized gain of USD 19,400.52). The end of day account balance is as follows:

Position

Position in Local Currency

Position Translated into Base Currency

Cash - USD

300,000.00

$300,000.00

Cash - CAD

(500,000.00)

($485,013.10)

Stock - XYZ

520,000.00

$504,413.62

NLV (in Base)

$319,400.52

Day 3: Account holder sells the 10,000 shares of XYZ at CAD 53.00 and the USD.CAD closes unchanged at 1.0309 (unrealized gain of USD 29,100.79). The end of day account balance is as follows:

Position

Position in Local Currency

Position Translated into Base Currency

Cash - USD

300,000.00

$300,000.00

Cash - CAD

30,000.00

$29,100.79

Stock - XYZ

0.00

$0.00

NLV (in Base)

$329,100.79

Day 4: Account holder seeks to close out the CAD 30,000.00 cash balance through the sale of CAD vs. the purchase of USD. Due to the quoting convention of this pair in which the order must be specified in a quantity of USD, the account holder is required to determine the USD equivalent of CAD 30,000.00 at the desired trade price. Assuming the account holder seeks to close the position at the market price of 1.0253 an order to buy 29,259 USD.CAD would be entered which, if executed, will result in a residual long CAD balance of 0.75. The end of day account balance is displayed below:

Position

Position in Local Currency

Position Translated into Base Currency

Cash - USD

329,259.00

$329,259.00

Cash - CAD

0.75

$0.73

Stock - XYZ

0.00

$0.00

NLV (in Base)

$329,259.73

Note, however, that in accordance with IB's policies regarding nominal Forex balances, residual balances of less than USD 5.00 equivalent will automatically be converted into the account holder's base currency upon settlement assuming no subsequent trade activity in that non-base currency has taken place in the interim. This is intended to minimize the actions required of the account holder to convert nominal non-base currency balances back into the designated base currency and also to convert fractional balances which could otherwise not be converted. IB does not charge a commission for these automated conversions.

Statement and Year End Reporting for US persons and entities comprises the following:

1. Cost Basis: While the required reporting schedule was staggered, the primary cost basis that will be reported to the IRS includes equities bought and sold after December 31, 2010. This includes the adjusted cost basis resulting from wash sales and corporate actions.

The future phase-in period for broker reporting includes the assets sold on or after the following dates:

2. Tax Basis Method: Brokers are required to use the method first in, first out (FIFO), unless given other instructions by an investor. Changes to your tax basis method may be submitted through the Tax Optimizer. The Tax Optimizer is launched from within Account Management and is available for stock, option, bond, warrant and single-stock future trades.

IB offers multiple tax basis methods, including three basic options:

● First In, First Out (FIFO) - This is the default option. FIFO assumes that the oldest security in inventory is matched to the most recently sold security.

● Last In, First Out (LIFO) - LIFO assumes that the newest security acquired is sold first.

● Specific Lot - Lets you see all of your tax lots and closing trades, then manually match lots to trades. Specific Lot is not available as the Account Default Match Method.

Tax Optimizer also lets you select the following additional derivatives of the specific identification method.

For complete instructions on using the Tax Optimizer and details on the lot-matching algorithms for each method, see the Tax Optimizer Users Guide.

Note: Changing your tax basis is effective immediately. The basis selected will be applied to all subsequent trades on the account statements and tax reports. Updates will not affect previously closed trades nor the TWS profit and loss data displayed.

3. Gain & Loss Categories: An additional requirement to the cost basis reporting is the capital gain or loss category. The gain or loss category of equities is determined by the length of time in which the security was held, known as the "holding period."

● Short-Term - Holding periods of one year or less are categorized as "short-term."

● Long-Term - Holding periods over one year are categorized as "long-term."

U.S. legislation from 2008 included new guidelines for tax reporting by U.S. financial institutions. Effective January 2011, U.S. Brokers are required to report cost basis on sold assets, whether or not a gain/loss is short-term (held one year or less) or long-term (held more than one year). U.S. brokerage firms, Interactive Brokers LLC (IB) included, implemented changes to comply with the legislation.

Disclaimer: IB does not provide tax advice. These statements are provided for information purposes only, are not intended to constitute tax advice which may be relied upon to avoid penalties under any international, federal, state, local or other tax statutes or regulations, and do not resolve any tax issues in your favor. We recommend that you consult a qualified tax adviser or refer to the U.S. Internal Revenue Service.

When account holders enter into transactions with instruments which are denominated in a non-Base Currency, the resultant profit or loss along with any interest charges (in the event of a margin loan) will remain in the currency in which the product was denominated until such time the account holder acts to close the currency position(s). This responsibility rests with the account holder as closing the position requires acceptance of a conversion price which is likely to be subject to continuous fluctuation similar to any other financial instrument.

There are limited instances in which IBKR will act to close a non-Base Currency position, including the following:

1. In situations where a margin deficiency exists and the position is closed in an effort to restore margin compliance; and

2. If the non-Base Currency balance is deemed to be nominal. Nominal balances are defined as those below USD 5.00, or equivalent. Such balances are regularly swept once settlement has been completed into the Base Currency as long as no other unsettled activity remains. Note that balances which are accrued but not yet posted, such as interest debits and credits, are not subject to being swept while in an accrual state.

3. If the account equity is deemed to be nominal. Here, if the account balance is below USD 80.00, or equivalent, the balance consists solely of cash and there has been no trade activity over the prior 10 business days, all non-Base Currency balances will be unwound and converted into the Base Currency. Note that this logic does not apply to accounts managed by a financial advisor or carried on behalf of an introducing broker.

4. If the account has selected the Close Account option in Client Portal. Here, all non-Base Currency balances not greater than 1,000 USD equivalents will be automatically converted into the Base Currency.

IBKR does provide an expedited process to assist account holders who wish to close all non-Base Currency positions collectively. To use this process, start by clicking on the Account button at the top of the TWS, which opens up a window displaying account balances including cash positions in all denominations. In the section titled 'Market Value - Real FX Balance" right click on any row to from the drop down menu to select the option titled 'Close All Non-Base Currency Positions'. Upon clicking that link, the account holder will be guided through a series of steps which will create a market order to close any non-Base Currency positions.

NOTE: Commissions are charged on FOREX conversions initiated by the account holder but not on those initiated by IBKR for the purpose of closing a nominal balance as noted above. IBKR will charge a commission if the position was liquidated in order to restore margin compliance.

After an account has been closed, the account holder will continue to be provided access to Client Portal for the purpose of reviewing and printing historical statements along with historical as well as the following year's tax forms (once issued). Access is provided using the same user name and password combination in place at the time of closing. Accounts which were enrolled in the Secure Transaction Program will no longer need a security device to log into their account.

As the IBKR business model, by design, is oriented towards active traders, there is no provision for dormant or inactive account status. As long as an account remains funded it will be subject to the monthly minimum activity fee of USD 10 if the account balance is above USD 2,000 (or equivalent) and USD 20 once the account balance falls below USD 2,000 (this minimum activity fee is set at USD 3 for account holders age 25 and under). Also, should the account balance fall below USD 2,000 IBKR is precluded, by regulation, from affording margin treatment to securities positions. In addition, account holders will also be billed for any market data subscriptions maintained and, as a matter of policy, will have subscriptions terminated automatically when the account balance falls below USD 500.

Also note that the monthly minimum activity fee will continue to be assessed until such time the account no longer has equity, at which point it will be automatically closed. Should funds be transferred back into the account, thereby reopening the account, the monthly activity fee will once again be assessed.